Commercial firms “surprisingly” confident of profitability hike

West: clients more demanding than ever

Two-thirds of commercial law firms are surprisingly confident of increasing profits by at least 10% in each of the next two years, according to new research.

The Pressure Points report for LexisNexis found that increased gearing, or outsourcing to a ‘fixed-fee law firm subsidiary’, were key strategies that firms were looking to employ.

The survey of 101 mainly commercial firms, conducted by Jures, found 30% confident and 36% very confident about significantly increasing profitability in the coming two years.

They identified competition from new alternative business structures (ABSs) entering the market as the main threat to their businesses over the next five years, followed by managing challenging economic and social conditions, and increased law firm competition fuelled by mergers and acquisitions.

The report found the strategy seen as the most effective to improve profitability was to increase gearing, particularly by delegating work to associates and trainees (less so to paralegals) and outsourcing, especially to a fixed fee law firm subsidiary. At the same time, the management challenge deemed to be most significant over the next five years was the need to increase the number of lateral hires.

The prospect of increased automation and greater use of online legal documents was seen by more than half of the respondents as inevitable and making a positive contribution to client service.

There was also an expectation that client pressure for fixed fees will increase, as will demand for capped fees, discounted rates for regular panel instructions, more added benefits – such as secondments and CPD – and risk-sharing, such as conditional or contingency fee agreements.

Nick West, director of legal markets at LexisNexis, said: “The level of confidence in future growth is surprising given the current market landscape. But it appears that law firms are now more confident about the economic situation. They are looking to the future and wish to ensure they are ready for the changes that the Legal Services Act and client behaviour is bringing.

“This means having the right people in the firms to deal with new competitive entrants and set out a strategy to deal with change, ensuring associates and trainees are equipped with the best tools to provide legal information with confidence.”

He added: “Clients are clearly more demanding than ever and firms are being forced to respond. They must make sure that they are working as efficiently and productively as possible. The lawyer who can access reliable information speedily, make good use of precedent documents and apply technology to time-consuming tasks, such as drafting, will be the lawyer who has the competitive edge.”



    Readers Comments

  • This is useful research information that reflects the continuation of a supply-side view from firms. It appears to focus on the traditional elements of developing competitive positioning but fails to deal with the end result of that effort. If the responding firms are confident of future increased profits, one of the most important management challenges will be to communicate with potential clients about the benefits of the services they offer.

    Effective and efficient marketing management will be the key element that unlocks the profits they are expecting. Building a firm that can deliver excellent commercial legal services is not enough, you need to bring in the client enquiries too.

    The noted ABS competitors (and others) are already promoting their services widely and driving the market entry strategies hard to capture market share. Without the matching marketing effort many of these excellent firms will be passed by because a new service has be sold more effectively to your current clients.

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